How do you set up consultancy payments based on a day rate and hourly work?

[HRExpert2024]

Hi all,

I am looking to start a consultancy business and have been advised to consider a day rate of £500, but I will only be looking to perform 3 hours work each week (as I have another job alongside).

This may sound rather silly although I appreciate any advice - with this in mind, do I just state my services as: £500 based on 3 hours per week? How is it worded / would the calculations actually be different?

 

[fisicx]

Just set an hourly rate of 500/8: £62.50

 

[GLAbusiness]

Just set an hourly rate of 500/8: £62.50

That's the way I operate. Each month I invoice for total number of hours worked at the hourly rate.

My contract quotes both the day rate and hourly rate. My rates include an allowance for my expenses (travel etc.). So I don't have to worry about the clients rules for their own staff.


If you are B2B think about registering for VAT

 

[HRExpert2024]

That's the way I operate. Each month I invoice for total number of hours worked at the hourly rate.

My contract quotes both the day rate and hourly rate. My rates include an allowance for my expenses (travel etc.). So I don't have to worry about the clients rules for their own staff.


If you are B2B think about registering for VAT

thanks for this - I spoke to someone about whether to set up a business or not but they have advised to just be a consultant & get VAT registered. Would that suffice? I’m reluctant to form a business yet as I’m just getting going.

 

[GLAbusiness]

You will be forming a business. The choice is between sole trader or LTD Company. My guess is sole trader to start, but you may want take advice from an accountant

You mention a couple of times that you have been given advice. Make sure you check that this advice is from qualified people. Double check with qualified people.

I don't know what field you will be consulting in. However, my gut feel is that £62 per hour is too low. Make sure you check the going rate in your industry.

Your contract must make clear whether the rate is including or excluding VAT.

A half hour free consultation with an accountant may give you a much better steer. If you start to get more business you really should get an accountant on board. It is better to do this up front than to wait for year end and fined out all the things you did wrong


Disclaimer: I am not an accountant but have been consulting for 26 years.

 

[HRExpert2024]

You will be forming a business. The choice is between sole trader or LTD Company. My guess is sole trader to start, but you may want take advice from an accountant

You mention a couple of times that you have been given advice. Make sure you check that this advice is from qualified people. Double check with qualified people.

I don't know what field you will be consulting in. However, my gut feel is that £62 per hour is too low. Make sure you check the going rate in your industry.

Your contract must make clear whether the rate is including or excluding VAT.

A half hour free consultation with an accountant may give you a much better steer. If you start to get more business you really should get an accountant on board. It is better to do this up front than to wait for year end and fined out all the things you did wrong


Disclaimer: I am not an accountant but have been consulting for 26 years.

Advice has been given from another HR Consultancy firm with over 30 years experience so all useful insights. I have an accountant so I’ll touch base with them - this is incredibly useful so thank you very much!

 

[GLAbusiness]

A quick google

Sorry if I am telling you what you already know.

Service 2. Hourly Rate:

Cost​

– From £100 per hour plus VAT (pro-rata’d).

What you Get:​

Advice, via e-mail or phone, on a pay as you go and remote basis. We generally don’t offer Site visits

Service 2. Hourly Rate:The Human Resources Consultancy service for SME's Cost – From £100 per hour plus VAT (pro-rata’d). What you Get: Advice, via e-mail or phone, on a pay as you go and remote basis. We generally don’t offer Site visits

The Human Resources Consultancy service for creative SME's

The HR Kiosk is the Human Resources Consultancy service for SME's in the UK creative industries. Lesley Furber is here to help.

www.thehrkiosk.co.uk

Sample size = 1.

 

[Paul Kelly ICHYB]

get VAT registered

An d what was the reason behind this bit of stellar advice?

 

[MyAccountantOnline]

thanks for this - I spoke to someone about whether to set up a business or not but they have advised to just be a consultant & get VAT registered. Would that suffice? I’m reluctant to form a business yet as I’m just getting going.

Unless your earnings will be under £1,000 (so that you can use the trading allowance) you either need to register as self employed or set up a limited company for the work you will be doing.

Depending on your other income a company may be the best option for you but it's something you really should get professional advice on. Getting the structure of your business right at the onset can save a lot of tax.

You need to decide on your business structure before considering VAT registration.

 

[NickGrogan]

Hourly rates incentivise slow working; why would customers want you to work slowly?

Better to bill on value.

 

[BubbaWY]

Hourly rates incentivise slow working; why would customers want you to work slowly?

Better to bill on value.

On the flip side, providing an all in quote could see the provider build in risk which could end up seeing the client pay more than if it was hourly.

 

[NickGrogan]

Billing on value isn't the same as billing a fixed cost, which I think is what you're referring to.

 

[BubbaWY]

Billing on value isn't the same as billing a fixed cost, which I think is what you're referring to.

Apologies, yes.

 

[eteb3]

The VAT question really does depend on whether you have any VAT to reclaim, and if it's worth the faff. If your kit is a laptop and a phone, seems a bit silly.

@MyAccountantOnline is right that if self-employed you need to register, but you don't need to do that before you start work: the deadline is (iirc) very leisurely indeed (like, before next tax return is due or something)

I would get a decent contract written up, too. Things to watch out for:
- being held to be an employee if you have one or two clients who you regularly work for, or work for for a long time - the contract can help head that off to some extent
- billing basis as above: do you really want to keep a record of every hour, or do you want to price for a chunk of work? I've found hourly billing with a clear conscience is difficult. Should I stop the clock when I answer the door? When I have an eye break? When the other half calls? etc
- how work will be approved, and default approval after X days
- billing frequency and process
- personal warranty by the manager signing that they have authority to enter into the contract, and that the budget has been approved
- 'reasonable efforts' to bill to their requirements, but invoice is payable even without PO and other faff
- who signs off on the work and what happens when they go on holiday/go sick/get told to cut costs and start picking at little things
- how you'll review things if expectations seem misaligned
- notice period for ending by agreement
- when you can down tools without notice
- what you'll do if a bill is unpaid
- limitation of liability to client = total amount billed (this needs to be prominent: in bold as first or last clause should do it)

etc etc